Excerpt:.....also provides to them consultancy services.hence, the above venture is a business venture and the income received from the industrial sheds is business income. it cannot be assessed as income from property.6. in the case of karanpura development co. ltd. v. cit [1962] 44 itr 362, the supreme court observed : as has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. the dividing line is difficult to find ; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the.....

Judgment: 1. Since common points are involved, these appeals are being disposed of together.

2. The assessee took the land on lease under the lease deed dated 12-7-1974 for a period of 20 years with the option to renew for a further period of 20 years. On the said land, the assessee constructed industrial sheds providing infrastructural facilities such as power, water, etc., with the object of promoting industries in the State of Karnataka and also provided consultancy services. The sheds constructed were leased out under separate lease-deeds to various persons on rental basis. The amount received from the occupants of the sheds was claimed as business income. The ITO held that the amount received from the occupants of the sheds is assessable as income from property in these two years.

3. The learned counsel for the assessee strongly urged that with the object of promoting industries in the State of Karnataka and to render such units even consultancy services, the assessee had constructed industrial estate known as 'Jai Bharath Industrial Estate', Bangalore.

The assessee provided consultancy services such as technology, finance, management, selection of personnel for training, etc. The memorandum and articles of association provided for constructing of industrial estate and as such, it is a business venture. The industrial sheds have been constructed on the land which is taken on lease. The amount received from them is the rent as well as other services rendered (sic). Thus, the amount received from the occupants of the industrial sheds is assessable as business income but not as income under the head 'Property'. The learned departmental representative submitted that the industrial sheds are nothing but a building and the rent received from the occupants is assessable as income from property. The occupants have executed separate lease-deeds agreeing to pay rent for the area occupied by them. Thus, it is clearly the rent received from the tenants and is assessable as income from property. The other services rendered are only the normal facilities like water, power, etc. No evidence has been produced to show that the consultancy services have been rendered. Thus, he supported the orders of the lower authorities.

4. The objects of the company have been stated in Clause IIIA of the memorandum of association which reads as under: A. The main objects to be pursued by the Company on its inCorporation are the following : 1. To function as an investment and finance companyand to invest and/or finance and/or promote and/or establish in its own name or as a holding-company, or by entering into partnership with others all types of manu- facturing or service industries including Tourist Industry, Shipping, Commercial/Aviation, Hoteliering, Fishing, all types of Engineering Contracting, House Building, Plastics, Fertilisers, Electronics, Chemicals and Agro-based industries and to render consultancy services in the areas of Science and Technology, Management, Finance, Taxation, Efficiency Audit and Personnel and also to finance other financing institutions.

2. To do all acts and perform all functions falling within the description of 'Merchant Banking' as is known in business and industrial circles, other than 'Banking' as defined in the Banking Regulation Act, 1949.

3. To finance and/or invest in any business engaged in the distribution of goods and services including export of such goods and services, either independently as representatives of manufacturers of goods or services; or those manufacturers of goods or services themselves distributing their own goods or services.

4. To do the business of hire-purchase finance of all durable industrial and commercial goods and vehicles of all descriptions; machinery, equipment, tools and instruments of all descriptions; refrigerators, air-conditioners, washing machines and other equipment of personal use or otherwise or television and all types of electronic devices and equipment and all types of commercial, residential and industrial buildings.

5. To finance ownership or leasing of buildings including residential houses, hotels, fiats, blocks or tenements or to finance repairs already carried out or to be carried out, to such buildings as described above or to buy land and construct buildings of all types on own account for promoting housing projects, hotels, motels and other commercial, industrial, residential and all other types of buildings.

6. To carry on the business of factoring or any other form of financing of consumer credit.

Para 1: In pursuance of its avowed objective of promoting industries in the State of Karnataka and to render to such units as would be in need of them, 'consultancy services in the areas of science, technology, management, finance, taxation, efficiency audit and personnel selection and training'. The Industrial Credit & Development Syndicate Limited, with which is amalgamated the erstwhile Syndicate Bank Ltd., has taken upon itself the task of completing a well appointed and compact industrial estate in Bangalore, the main features of which are detailed in the following paragraphs : Compensation to be paid by the occupants to the Company will be determined on the basis of area, by mutual agreement, depending upon the extent and the situation of the shed and the type of construction, every occupant can also expect, in consideration of the compensation paid by him/them, the following services from the company: (ii) following up of industrial loan applications with financial institutions (viii) all kinds of merchant banking services in cases of limited companies.

Actual out of pocket expenses, in addition, however, will have to be borne by the parties seeking such services.

The compensation as fixed by mutual agreement has to be paid by the occupants on the appointed date.

5. It is clear from the above that with the avowed object of promoting industries in the State of Karnataka and to render consultancy services to such units, the assessee has constructed the industrial sheds at Yeshwantpur, Bangalore. Under Sub-clause 5 of Clause IIIA of the memorandum of association, one of the objects of the company is to buy lands and construct commercial, industrial, residential and other types of buildings. From the above, it is clear that the very object of the company is to construct commercial or industrial or other types of buildings and to let out the same which is an integral part of its business. The other object of the company is to finance and invest in all types of manufacturing or service industries. The correspondence with Mrs. Shanti R. Pai which is placed before us, also indicates that the assessee has rendered consultancy services also. This is not an ordinary case of constructing a building and letting it out. Here this is a case where an industrial estate complex has been constructed on a leasehold land providing all infra-structural facilities and the sheds have been let out to various persons who intend to start the industries. The assessee also provides to them consultancy services.

Hence, the above venture is a business venture and the income received from the industrial sheds is business income. It cannot be assessed as income from property.

6. In the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362, the Supreme Court observed : As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The dividing line is difficult to find ; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned.

Ownership of property and leasing it out may be done as a part of business, or it may be done as landowner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is 'Income from property' (Section 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner but as trader. The cases which have been cited in this case both for and against the assessee-company must be applied with this distinction properly borne in mind. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter....(pp. 377-78) This decision met with approval by the Supreme Court in its later decision in the case of S.G. Mercantile Corporation (P.) Ltd. v. CIT [1972] 83 ITR 700. It was observed by the Supreme Court : The above observations have a direct bearing. It is not necessary for the purpose of this case to say anything, beyond what has already been said while dealing with Section 9 of the Act, about the view expressed in the above passage regarding the rental income of an owner being treated as business income in case it is received as part of trading activity because we are concerned in the instant case with an assessee who is a lessee and not the owner of the property in question. The assessee, in the cited case of Karanpura Development Co. Ltd. [1962] 44 ITR 362, too was lessee of the coal-fields. So far as such assessees are concerned, who as part of their essential trading activity take lease of property and sub-let parts thereof with a view to make profits, the dictum laid down above, in our opinion, would hold good and the profits would have to be treated as business income. (p. 708) In this case, the object for which the company was formed, inter alia, was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real and personal property and to deal with the same commercially. In less than two weeks of its in Corporation, the assessee took on lease the property in question and undertook to spend Rs. 5 lakhs for the purpose of remodelling and repairing the structure on the site. The assessee was also given the right to sub-let the different portions. The assessee's activity consisted of developing the demised property and letting out portions of the same as shops, stalls and ground spaces. On the above facts, the Supreme Court held that taking of the property on lease and sub-letting portions of the same, was part of the business and trading activity of the assessee and the assessee in letting out the leasehold property was not acting as an owner but as the trader.

7. In the case of CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596 (SC), the assessee constructed vaults for storage of films. The question whether the income received from licensing the vaults to vault-holders was from business or from property, was considered by the Supreme Court. It was held "...that the respondent was carrying on an adventure or concern in the nature of trade and the subject which was hired out was a complex one.... The return received by the respondent was not income derived from the exercise of property rights only, but was income received from carrying on an adventure or concern in the nature of trade. The income arising from licensing the vaults to vault-holders had, therefore, to be computed under Section 10 of the Indian Income-tax Act, 1922 and not under Section 9." (p. 597) 8. In Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353, the Supreme Court observed : ...whether a particular letting is business has to be decided in the circumstances of each case. We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset....(p. 358) 9. In the case of Narasingha Kar & Co. v. CIT [1978] 113 ITR 712 (Ori.), the assessee under an agreement undertook to construct 20 shop-rooms on the land belonging to a school. He constructed and let out the shops and collected rent from the tenants. The question arose whether the rent received was assessable as income from property or business. The Orissa High Court held that the income received was business income assessable under Section 28.

10. The ratio laid down in the above cases squarely applies to this case. In the instant case we have already pointed out that one of the objects of the assessee-company was to buy land and construct commercial, industrial and other types of buildings. The object of the company was also to promote industries in the State of Karnataka and to achieve the target, the assessee-company constructed an industrial estate and let out the same. The assessee was also providing consultancy services to the occupants of the industrial sheds. These facts will clearly show that the income received from the industrial estate is a business income as those activities would amount to business activities. Thus, the income received from the industrial sheds is assessable as income from business. The Commissioner (Appeals) was wrong in holding that the income received from the sheds was assessable as income from property. We direct the ITO to assess the income from the industrial sheds as business income in these two years.